Armed police were called out to Pickering following reports that a 16-year-old boy had threatened another teenager with a knife on Friday evening.
The alleged incident took place in The Ropery car park at around 6.30pm.
Police officers, supported by the Firearms Support Unit and a police helicopter, were called out to locate the youth who had fled from the scene.
He was arrested in the rear garden of a property on Firthlands Road at 10.45pm.
Following questioning in custody, the 16-year-old was released on conditional police bail to allow more time for officers to continue their enquiries.
A spokesman for North Yorkshire Police said: “Due to the serious nature of the alleged incident, every effort was made to reduce the risk to the general public while the operation was carried out to locate and arrest the suspect. We thank residents for their patience during this time.”
Witnesses or anyone with information that could help the investigation are asked to call North Yorkshire Police on 101, select option 2, and ask for Stewart Ashton. Or email Stewart.Ashton@northyorkshire.pnn.police.uk
Alternatively, information can be shared anonymously via Crimestoppers on 0800 555 111 quoting reference number 12140179542.